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S E C T I O N 1 Preserving Economic Freedoms How does the government protect Americans’ economic rights within our system of free enterprise? What policies does the government create to serve the public interest? How does the government intervene to protect public health, safety, and well-being?

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A Tradition of Free Enterprise 1. Consumers influence producers through their buying decisions. 2. Consumers influence the government’s economic policies through voting and other techniques. Americans have traditionally favored economic freedom over economic regulation. What is the role of consumers in our free enterprise system?

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The Public Interest Public interest can be described as concerns of the public as a whole. Government responds to public interest by enacting public policy, or laws and standards on topics of public interest. Consumers can influence public policy through voting or by joining an interest group, which is a private organization that tries to persuade public officials. Consumers are aided by public disclosure laws, which require companies to give consumers full information about their products

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Section 1 Review 1. Americans generally favor – (a) strong government control of the economy. – (b) limited government intervention in the economy. – (c) no government intervention in the economy. – (d) government control of manufacturing only. 2. The government provides a framework on which free enterprise can flourish by – (a) enforcing laws and contracts. – (b) forming interest groups. – (c) taxing the public. – (d) taxing businesses

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S E C T I O N 2 Providing a Safety Net What role does the government play in fighting poverty? What government programs attempt to aid those facing poverty?

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The Poverty Problem The poverty threshold is an income level below that which is needed to support families or households. Welfare is a general term that refers to government aid to the poor. The poverty threshold is determined by the federal government and is adjusted periodically

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Redistribution Programs Cash transfers are direct payments of money to eligible people

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Other Redistribution Programs Besides cash transfers, other redistribution programs include: – In-kind benefits In-kind benefits are goods and services provided by the government for free or at greatly reduced prices. – Medical benefits Health insurance is provided by the government for the elderly and disabled (Medicare) and for poor people who are unemployed or are not covered by their employer’s insurance (Medicaid). – Education benefits Federal, state, and local governments all provide educational opportunities for the poor

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S E C T I O N 3 Providing Public Goods What is a market failure? What are public goods? How does government manage externalities?

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Market Failures A market failure is a situation in which the market, on its own, does not distribute resources efficiently. Would the free market ensure that roads are built everywhere they are needed? It’s doubtful. Neither could individuals afford to pay for a freeway

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Public Goods Public goods are funded by the public sector, the part of the economy that involves transactions of the government. A free rider is someone who would not choose to pay for a certain good or service, but who would get the benefits of it anyway if it is provided as a public good. A public good is a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers

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Externalities An externality is an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

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Section 3 Review 1. Which of the following is an example of the public sector of the economy? – (a) consumers purchasing goods from a private company – (b) laborers working for a private construction company – (c) government funding for a new national park – (d) individual donations to charity 2. What is government's role in controlling externalities in the American economy? – (a) Government tries to encourage positive externalities and limit negative externalities. – (b) Government tries to limit all externalities because they represent market failure. – (c) Government tries to limit positive externalities and encourage negative externalities. – (d) Government tries to encourage all externalities so that the market will be competitive

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S E C T I O N 4 Promoting Growth and Stability How does the government track and seek to influence business cycles? How does the government try to promote economic strength? Why and how does the government encourage innovation? Chapter 3, Section

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Tracking Business Cycles Macroeconomics is the study of the behavior and decisionmaking of particular economies. A business cycle is a period of macroeconomic growth followed by a period of contraction. One measure of a nation’s macroeconomy is gross domestic product (GDP). GDP is the dollar value of all final goods and services produced in a certain economy. Chapter 3, Section

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Promoting Economic Strength Policymakers pursue three main outcomes as they seek to stabilize the economy

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Encouraging Innovation Federal agencies fund many research and development projects. Also, new technology often evolves out of government research. A patent gives the inventor of a new product the exclusive right to produce and sell it for 20 years. The government encourages the development of new technologies in several ways. Technology is the process used to produce a good or service